With a strong agrarian culture and a population still highly involved in the farming sector, agriculture in Papua New Guinea is one of the country’s largest economic contributors. While mining revenues have dominated exports since the 1970s, farming and forestry sustained the country in previous decades and are still the country’s largest employers and de facto safety net. According to PNG’s investment authority, approximately 85% of the population is engaged in semi-subsistence food production. The country exported PGK2.75bn ($1.31bn) in agricultural products in 2010, the latest year for which data was available.

The country’s primary cash crops consist of palm oil, rubber, coffee, cocoa, copra and tea. In addition, a number of other niche commodities such as spices, wheat, fresh fruit and vegetables, livestock and others are also grown to a lesser extent. Despite the substantial seasonal rainfall and high quality of soil, the country’s rugged and mountainous terrain means that only around one quarter (23,080 sq km) of PNG’s landmass is suitable for commercial agricultural activity, according to the government. This terrain, along with other mitigating factors such as limited farmer education and training, an underdeveloped infrastructure network, volatile crop prices and poor weather have all contributed to slower agricultural productivity (now increasing by only around 1% per annum) that is now being outpaced by population growth (2.7% per annum).

While PNG cannot compete in the global agricultural market in terms of price due to its high production costs and expensive transportation network, it has managed to carve out a profitable niche based on highquality goods. Most of this added value comes from organically grown produce and international certification for its products. But getting accreditation is not necessarily easy, according to Mike Janssen, the managing director of Cloudy Bay Sustainable Forestry. “Exporting to the US and European Union is complicated by the need to have the right certification and accreditation, but it is possible for companies in PNG to acquire them and open up these highly lucrative markets.” The four most profitable crops are palm oil, coffee, cocoa and coconut/copra, which represent roughly 80% of agricultural export value.

COFFEE: The second-largest generator of export crop revenue, coffee accounted for PGK521m ($247.94m) in 2010, accounting for 27.6% of agricultural crop exports according to data from the PNG central bank.

In the first six months of 2011, coffee farmers exported 23,200 tonnes of coffee from PNG compared to 23,700 tonnes over the same period the previous year.

According to the PNG Investment Promotion Authority (IPA), roughly 80% of coffee production is carried out on smaller-scale rural households encompassing a total area of 64,000 ha and employing some 2.5m workers. These operations are based in the highlands region, encompassing the Western Highlands, Simbu, Eastern Highlands and Southern Highlands provinces.

Despite having plenty of coffee farmers active in the country, the World Bank estimates that yields are 30-50% lower than their potential primarily due to a lack of support services and efficient farming techniques.

One of the few large-scale coffee producers and exporters is the Pacific Trading Company (PTC), which operates Carpenter Estates in PNG’s Western Highlands province. The company produces Arabica coffee beans on 1100 ha and produces tea on another 2100 ha, and also runs eight tea and coffee processing facilities. The largest exporter of tea in the country, PTC ships about 90% of PNG’s tea exports as well as 1.6m kg of domestically produced coffee each year, according to the Port Moresby Chamber of Commerce.

Some of the other primary coffee exporters operating in the country include Monpi Coffee Exports, PNG Coffee Exports, New Guinea Highlands Exports and Kongo Coffee. The primary destination markets are Germany, the US, Australia and Japan.

COCOA: Small-scale rural farmers grow the majority of cocoa, another major cash crop in PNG. Cocoa production averaged 40,500 tonnes from 2000 to 2010, generating export revenues of PGK225.9m ($107.5m) each year. As of 2011 there were some two-dozen private companies marketing PNG cocoa beans abroad.

Most cocoa cultivation takes place in a limited geographical region within the Autonomous Region of Bougainville and the East New Britain and Madang provinces responsible for around 80% of all production. Similar to coffee, restricting factors limit yields to roughly half of their potential output. A cocoa pod borer pest has plagued cocoa farming in recent years, damaging crops and lowering output. The Cocoa and Coconut Institute is working on improving its integrated pest management practices, as well as researching practical applications that rural farmers can use. The sector is governed by the Cocoa Industry Board, which is responsible for regulating exports, quality control and registering cocoa growers, processors and exporters.

ROAD MAP: PNG collaborated with the World Bank, on the National Agriculture Development Plan (NADP) 2007-16, which targets annual growth of 5% in the farming sector by focusing on 10 areas for improvement, from food and nutrition security to information management and communication. As whole, the NADP provides the sector direction along with implementation plans backed by long-term government financing.

To fulfil its mission, the NADP was given a PGK1bn ($475.9m) budget for its decade-long lifespan. In its early implementation, however, progress has been slow and the project has been hampered by a lack of coordination among various government agencies, as well as with the farmers themselves. One of the stumbling blocks has been the inconsistent distribution of the annual PGK100m ($47.59m) in funds. The Department of Agriculture and Livestock (DAL) initially planned to distribute the funds, but the responsibility has moved between various government agencies year to year.

In recent years, funds have been split among the 89 separate provinces, allowing each to proceed with limited oversight and accountability into whichever programmes selected on a piecemeal basis rather than the coordinated efforts originally endorsed by the plan. This lack of continuity has made it difficult to maintain viable, long-running development programmes.

RELATED PLANS: In the meantime, the DAL is still tasked with carrying out the NADP, but must do so without the financial backing initially intended for it. While the scheme has made limited progress in some areas, it has so far fallen short of its initial short-term goals of boosting export revenues of tree crops to PGK10.55bn ($5bn) between 2006 and 2011, as well as raising an additional PGK1bn ($475.9m) for the marketed food crops, livestock, spices, rice and wheat exports.

In addition to the assistance provided under the NADP, the companies active in the agricultural sector are also eligible for a number of sector-specific incentives intended to boost investment and by extension, productivity. Among these is the Rural Development Incentive, which grants income tax exemption for up to 10 years on the net income of new rural development businesses operating in one of 41 specified underdeveloped districts that are not dependent on the exploitation of natural resources.

The Primary Production Investment Scheme also allows shareholders in primary production companies to deduct development expenditures that include the cost of assets used for agricultural production to apply deductions against their personal tax liabilities. These primary producers also receive blanket deductions and initial accelerated depreciation on new agricultural production plants while the losses that are incurred in primary production may be carried forward indefinitely.

Efforts are also being made by various aid agencies, government organisations and trade bodies to boost the yields of many of these crops to make them more commercially viable. Coffee, coconut, cocoa and rubber plants have been heavily studied in recent years by government researchers resulting in newer hybrid strains that produce higher yields and are more resistant to pests. The cocoa plant has been one of the most successful cases of such research, with farmers eagerly awaiting new strains with demand exceeding supply for the new variants. There is also a 150% tax deduction on approved agricultural research targeting primary production development, along with accelerated depreciation consisting of a 100% write-off for new production plants in agriculture and fishing.

LENDING A HAND: To assist the cash-strapped government in its efforts to boost its agricultural sector, numerous international organisations have stepped in to offer support. AusAid, NZ Aid, the EU, the World Bank and the International Finance Corporation, among others have instituted programmes covering an array of subsectors and segments of the value chain.

Currently the largest investor in the farming industry, the World Bank is involved in a number of different capacity-building projects throughout the country. One of the more recent programmes undertaken with the support of the World Bank is the Public Partnership Agricultural Programme (PPAP), which aims to boost the profitable domestic coffee and cocoa industries. Initiated in 2010, the six-year $46m PPAP primarily supports coffee and cocoa farmers in targeted regions that have experience with these crops. Efforts for coffee farmers are targeted in the provinces of Western Highlands, Eastern Highlands and Simbu, while assistance for cocoa growers is centred on East New Britain and the Autonomous region of Bougainville.

The project consists of three separate components. The first is to improve institutional coordination between relevant government bodies and landowning farmers. The second and largest component is to strengthen the value chain and increase efficiencies from smallholders while the final component targets improving access to and from the farms by bettering the local transportation infrastructure. Scheduled to run through 2016, the project expected its first call for partnerships from the local community in mid-2012.

There is also an effort to support the growing palm oil sector by addressing one of the primary roadblocks to development – the lack of support infrastructure linking production fields to processing facilities, markets and inputs. Initiated in 2009, the five-year endeavour will channel $68m into improving access to palm oil smallholder farmers in West New Britain and Oro Provinces by funding road improvement projects in the vicinity. The World Bank has partnered with the Oil Palm Industry Corporation for the project, with the latter organisation responsible for its implementation, procurement, recruitment and monitoring.

REGULATION: The DAL is the primary oversight body regulating PNG’s agricultural sector through its various sub-departments including policy planning, food security, education and training, science and technology services, and provincial and industry support. Government supervision and planning for the industry has become convoluted over the years as numerous government private entities operate in the sector with sometimes overlapping and contradictory agendas.

STREAMLINING: There are now more than a dozen commodity boards or research groups active in the country representing a wide variety of agricultural products ranging from the Oil Palm Research Association to the Fresh Food Produce Association, each with its own agenda. This structure may change to streamline the oversight of the sector’s organisation. “From the government point of view, we have a very complex organisational structure,” DAL secretary Vele Pat Ila’ ava told OBG. “Each commodity has its own board and we need to rationalise this. Instead of one board for cocoa, another for rubber and so on, we need to have one encompassing commodity board.”

Additionally, a number of other governmental and quasi-governmental organisations have responsibilities in the sector, including the National Agricultural Quarantine and Inspection Authority, the National Agricultural Research Institute, and the Department of Environment and Conservation.

TOUGH ROW TO HOE: While the palm oil segment has evolved into a national champion of export revenue growth, the export value of PNG’s other commodities has remained relatively static for the past several years. Much of this is a result of the high, stable price of palm oil relative to other commodities but this effect is also being compounded by a host of persistent and often interrelated issues facing the sector including poor infrastructure, high production costs and the lack of economies of scale in the absence of large commercial farming and plantation operations.

The country’s landowner rights have also been seen as a significant impediment to large-scale farming. Due to the strong customary land rights laid out in the government’s regulations, efficient and effective transfer and use of lands can be extremely challenging. Complicated, conflicting laws governing legal leasing and ownership make the process of acquiring and developing large tracts of land a daunting process, which has in the past discouraged the major international agricultural companies from investing in PNG.

Contrary to most developing economies, PNG has fewer large-scale plantation tracts and expanding smallholders. Figures show just 3% of all PNG territory is classified as alienated land, while the rest is taken upon small plots or family subsistence farms. “The challenge is getting farmers to go from smallholders to bringing in more customary land to develop larger-scale farms,” Ila’ava said. “The Incorporated Lands Groups (ILGs) is one policy that allows us to do that by pooling resources.”

SCALING UP: ILGs are legally formed cooperative groups of landowners created in order to allow certain commercial activities to take place over a large geographic area while still maintaining landowners’ benefits. Once there is an ILG, the developer must have provided free and prior informed consent. The ILG must then come to an internal consensus as to how to develop the land in question.

Upon completion of this often-contentious step, the ILG may then petition the government to conduct a formal survey of the land in order to delineate its boundaries and ensure that there are no overlapping claims. The next step is to register the land for whichever development activity is warranted – mining, agriculture, hydrocarbons exploration and the like – for which the government can then issue permits.

While these cooperative agreements have paved the way for larger-scale commercial projects in some cases, the process has not been completely without its detractors. Special Agriculture Business Leases (SABLs) have caused problems in particular. The first step to gaining a Forest Clearance Authority (FCA) to clear out land, SABLs have been liberally granted for massive tracts of land in recent years under the auspices of developing bigger crop plantations – usually palm oil projects.

While this system allows landowners to go through third parties to clear large tracts of customary land in an expedient manner, these agreements are sometimes exploited to extend beyond the original delineated borders, enlarging the development area by factors of 10 or even 100. Other problems arise when these plots are used for non-agricultural production mandated after they are cleared. Few of these cleared land plots have resulted in large-scale agricultural production as of yet, however, according to Ian Orrell, executive director of the PNG Palm Oil Council.

With dozens or even more landowners staking claim to potential developmental areas, the consent process can take three to four years for a small plot of a few hundred hectares, while larger plots running into the thousands of hectares can take even longer periods to settle, often stretching to five or six years. However, many of these proposed projects, which encompass a combined total of 5.53m ha, are estimated by local experts to be nothing more than large-scale land grabs to be used to harvest and sell timber abroad, Orrell said. This view is based on the fact that timber harvests jumped by 600,000-700,000 cu metres in 2011 – more than a quarter of average annual output – with the increase coming almost entirely from SABL lands supposedly used for growing other crops.

ENQUIRY: In an effort to clear the air on the growing number of disputed SABL contracts, the government established a commission to enquire into the matter in September 2011. The commission’s initial findings were expected by March 2012, but they have yet to be released. However, once the commission reaches its conclusions, the next step will be to resolve the disputed contracts, followed by the establishment of a more formal framework of land use and ownership rights.

Whether or not the commission of enquiry comes to a conclusion at all is also a matter of speculation. Because the enquiry has lingered on and begun to encompass an increasing scope, some in the agriculture sector expect that commission’s terms of reference, which govern the scope of the investigation, may have to be revisited to avoid treading on territory already governed by the Department of Lands and its existing Land Reform Programme. Both entities are working on the issue of land ownership from different starting points, making it difficult to discern exactly where one jurisdiction ends and the other begins.

The complicated nature of the problem leaves little room for a quick fix that will be amenable for landowners, the government and developers. While the outcome of the commission of enquiry may sort out the legality of these previous transactions in question, the actions necessary to rectify the situation could prove painful.

Revoking leases on large plantation tracts already leased and under development could deal a severe blow to agricultural growth as well as investor confidence in the country, while maintaining the status quo of the illegally wrought contracts would likewise be detrimental to the rightful landowners and stability of the sector. “This is one of the most fundamentally important issues the government has faced since independence.” Orrell told OBG.

Due to the gravity and long-term implications of this question, many large international agricultural organisations (Malaysian palm oil giants, in particular) have been waiting on the sidelines until the government reaches a verdict before committing significant resources to new plantation projects in PNG.

RUBBER AND COPRA: Rubber is the only governmentcontrolled agricultural segment, with production is managed by the PNG Rubber Industry (PNGRI). Around 8000 households are involved in growing rubber trees. Rubber exports average just over 4000 tonnes per annum, with the first two quarters of 2011 shipping 2100 tonnes, according to central bank data.

The primary growing areas for rubber, 75% of which is produced on plantation estates, include the Central, Western, East Sepik, New Ireland, Gulf, Manus and Oro provinces. Major importers of PNG rubber include Australia, the US and EU countries.

Copra, derived from coconuts, is produced in PNG and sold in a variety of forms, the most common of which are whole copra, copra oil and copra meal. Copra exports registered 16,400 tonnes in 2010 compared to 15,200 in tonnes the previous year, while copra oil exports maintained a steady 44,800 tonnes in both 2009 and 2010, according to central bank data. In terms of value, 2010 copra exports brought in PGK18.4m ($8.76m) and copra oil exports were worth PGK126.8m ($60.34m). The primary export destinations for copra products are Australia, Germany, the Philippines and Singapore.

SPICE OF LIFE: Spices, particularly vanilla, cardamom and ginger, comprise yet another potentially high-yielding cash crop. Many farmers already grow these crops, and their relatively high value and ease of growing makes them especially attractive.

Spices do not require very much space, allowing a good deal of flexibility as to where they can be grown and making them accessible to small farmers. These products also have short production cycles. Vanilla plants, for instance, flower after just two years and begin producing after three, whereas other cash crops such as palm oil or rubber require up to seven years to even begin yielding a product and making money.

After Hurricane Hudah destroyed much of the vanilla production in leading producer Madagascar in 2000 and vanilla commodity prices spiked to $500/kg, PNG farmers sprang up to become vanilla producers hoping for fast earnings. With hundreds of farmers subsequently growing vanilla beans, PNG quickly became one of the world’s leading growers in 2003 and 2004, with annual exports hitting 857 tonnes and 866 tonnes, respectively, according to data from PNG’s Department of Commerce and Industry. This ranked behind only Indonesia’s 926 tonnes in 2003 and placed the country as the world’s largest vanilla exporter the following year, accounting for 21.27% of global exports. These peaks were short-lived, however, as many farmers exited the subsector as quickly as they entered when prices normalised from a peak of $700/kg to around $200/kg, and the high margins evaporated. As a result, vanilla exports plummeted to just 169 tonnes in 2005.

As of 2011, the total annual vanilla exports were a fraction of their peak, estimated at around 50 tonnes per year. Prices stabilised at $45-50/kg, and although they are slowly creeping upwards, they still give lower margins than more cocoa and coffee commodities.

One of the handful of companies still producing vanilla and other spices despite the vicissitude of commodity price swings is home-grown processor and exporter Paradise Spice. The company currently has a network of roughly 530 vanilla-producing farms based in southern PNG. It has an annual processing capacity of 20 tonnes per year, although actual output is closer to some 5-10 tonnes per year.

Other significant spice producers operating and exporting from PNG include Sogeri Spices and Pacific Spices, which attained organic certification at their New Britain-based farms for the Australian and Japanese markets. Also operating is Puritau-Pacific Spices, which is establishing a solvent extraction facility in Port Moresby where it will produce pure vanilla extract, vanilla oleo resin and other spices.

OUTLOOK: Continuing demand for palm oil should continue to drive the agricultural export market, while timber production is also expected to continue at higher than usual levels until land usage framework issues are resolved. Production of other crops including cocoa and coffee will continue to be dependent on commodity prices and will likely see uneven or stagnant growth until the logistics, marketing, land use, land ownership and inefficient farming practices are resolved.

While some of these challenges have undoubtedly hindered commercial-scale growth and investment in the domestic agricultural sector, the widespread use of traditional low-tech, small-scale farming practices, including the dearth of chemical pesticides and fertilisers employed in such practices, could contribute to the country’s niche market image of a responsible, sustainable and organic agricultural producer. Increasing recognition of PNG’s organic and fair-trade credentials could also open high-value Western markets in the US and EU and boost export revenues into the future.